The step-up in basis allows a person that inherits an asset to use the fair market value of the asset at the time of inheritance as the cost basis for taxes when it comes time to sell. In short, it reduces the capital gains tax on inherited assets. This is very beneficial for assets that have greatly appreciated in value before being passed to heirs. To help your understanding, keep in mind that the larger the difference between the “cost basis” and the “selling price,” the more someone pays in taxes.
Rationale Behind the Step-Up In Basis
The step-up in basis exists because many properties or stocks have been held long-term by owners. This has resulted in considerable gains. If someone inherits property based on the ORIGINAL purchase price, that seems almost unjust. Furthermore, it may be very hard to determine the actual original purchase price.
How to Calculate the Step-Up in Basis
Ladybird Deeds Do Not Impact Step-Up in Basis
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Lori Vella is an Estate Planning and Business Attorney. She works virtually throughout Florida and New York, but has her home office in Tampa, Florida. She is mom to a little boy which ignited the passion for helping other families. She and her son enjoy car rides, playgrounds and taking mini-adventures. They also have an organic garden that surprisingly yields vegetables. Lori considers herself well-versed in Seinfeld and welcomes any trivia!
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